This Phase I NIH SBIR proposal we intend to investigate a new and novel method of delivery of bone morphogenic proteins (BMPs) for accelerated osteoinduction. We propose to explore the potential of in vivo production of BMPs at the wound site using silica gel encapsulated osteoinductive cells. Included in our proposed 95 rat study are both a1logenic and xenogenic cell types. This study will evaluate: 1) the toxicity of the inorganic porous silica beads both locally and systemically, 2) determine any inflammation or immune response in short and long term (before and after spontaneous degradation); 3) establish the viability of syngeneic (similar to autogeneic) and xenogenic origin cells encapsulated with porous silica gel beads; 4) test the potential of the material to be used as encapsulated xenogeneic osteoinductive cells as a growth factor delivery vehicle in vitro and in vivo. Our cell encapsulation strategy allows relatively small osteoinductive proteins, such as BMPs, to escape while simultaneously excluding both antibodies and the even larger antigen presenting cells (APCs). This proposal will provide the essential methods for a Phase II application in which silica gel encapsulated generically altered BMP producing cells can be utilized to heal fractures and provide arthrodesis (preclinical efficacy). PROPOSED COMMERCIAL APPLICATIONS: The repair of segmental osseous defects caused by trauma or tumor resection and spinal arthrodesis represents a challenge to orthopaedic surgery. More than 250,000 procedures require the use of bone grafts to reconstruct skeletal defect annually in the United States. Autogenous cancellous bone graft, considered the gold standard for the treatment of bone deficit, is expensive and results in a higher rate of complications. Our encapsulated cell therapy approach could shorten surgical time and provide a better and more predictable patient outcome.